Governance in Lithuania - VKC | Valdymo koordinavimo centras

SOE reform

Objectives of the reform

For a considerable period since the Restoration of the Independence, state institutions and politicians have neglected the governance of state-owned enterprises. One of the most apparent implications of this neglect is a lack of operating efficiency in this sector.

The reform of state-owned enterprises aims to address these challenges, promote efficiency and transparency in state-owned enterprises and achieve that state becomes a professional and responsible owner of such enterprises actively seeking to increase the asset value. The purpose of the reform of state-owned enterprises is to make corporate governance transparent, based on good governance principles and geared towards clear goals.

The key outcome expected out of this reform is better efficiency of state-owned enterprises. More efficient operations bring multiple benefits for the companies themselves as well as the state and its citizens alike. Increased efficiency of state-owned enterprises helps improve the quality of the services provided and products developed by the companies and reduce the price of the services offered.

Greater efficiency of state-owned enterprises would also boost the profitability of the companies and their contribution to the budget, while these funds could be used to finance social security, education, healthcare, culture and other important sectors.

Transparent operations of state-owned enterprises also contribute to the creation of a business-friendly climate, which is a necessary corollary to attract more foreign investors to Lithuania. Another important aspect is the development of capital market. Optimisation of the companies’ business opens up the opportunities to attract some funds needed by the companies from capital markets. If more of the state-owned enterprises were listed on stock exchanges, this would give a significant boost to market capitalisation, increase the liquidity of the market and make it more appealing to both domestic and foreign investors.

In line with OECD recommendations and international good practices, in 2010 the Government passed the Resolution approving the Schedule of the Guidelines for Ensuring Transparency in the Operations of the State-Owned Enterprises and Appointing the Coordinating Body (known as the Transparency Guidelines), which set high transparency and accountability requirements for all SOEs. In 2012, the Resolution Approving the Schedule of the Procedures for the Implementation of State Property and Non-Property Rights in State-Owned Enterprises (known as the Ownership Guidelines), which outlined the Government’s ownership policy for the SOEs. The Ownership Guidelines provide decisions on the principles to be followed in defining strategic objectives and setting financial indicators, separating regulatory and ownership functions, forming boards and supervisory boards of SOEs, etc. The Ownership Guidelines sets out three key measures to strengthen the governance of SOEs: a strong shareholder, strong corporate executives and clear objectives. In order to strengthen the principles of independence and selection of boards and supervisory boards, the Resolution Approving the Schedule of Procedures for the Nomination of Candidates to the Board of Directors of a State or Municipal Enterprise and Candidates to the Collegial Supervisory or Governing Body of a State- or Municipality-Owned Enterprise to be Elected by the General Meeting (the so called Nomination Guidelines) was adopted. The Nomination Guidelines formalize the selection process, determine the composition of the collegial bodies of the SOE, requirements for candidates and more. The measure of clear objectives is implemented by setting the target average cost of equity and by preparing letters to companies regarding the State’s objectives and the expectations for the SOEs (Letters of Expectations).

In 2011 152.1EUR million of dividends and profit contributions

In 2012 17.7EUR million of dividends and profit contributions

In 2013 16.8EUR million of dividends and profit contributions

In 2014 74.3EUR million of dividends and profit contributions

In 2015 111.4EUR million of dividends and profit contributions

In 2016 120.9EUR million of dividends and profit contributions

In 2017 173.6EUR million of dividends and profit contributions

in 2018 136.2EUR million of dividends and profit contributions

in 2019 122.4EUR million of dividends and profit contributions

in 2020 150.3EUR million of dividends and profit contributions

in 2021 151.3EUR million of dividends and profit contributions

in 2022 189.6EUR million of dividends and profit contributions

Clear objectives

In order for SOEs to operate as efficiently as possible and to have clear information about what the state expects from them, the SAI must clearly state the financial goals and expectations for the activities of the companies. As stated in the Ownership Guidelines, “the state, participating in the management of state-owned enterprises, aims to increase business value, yield dividends or profit contributions, ensure national security interests, implement strategic projects or other goals”, therefore, in the VAI’s expectation letters, individual SOEs present the main expectations related to commercial purposes, fulfillment of special obligations, etc. This shows that next to the regulated general state goals for SOEs, such as the financial return requirement, the setting of individualized goals related to specific company activities is increasing.

Essential recommendations for letters of expectations prepared by VAI are presented in the “Recommendations for the preparation of the letter of the institution representing the state regarding the goals pursued by the state in the state-owned company and the expectations set for the state-owned company” (hereinafter – Expectations Guidelines). These guidelines define the principles of formulating financial and non-financial expectations, establish communication requirements when harmonizing and determining the indicators to be achieved and their values, indicate the obligation to establish basic requirements for special obligations and define accountability requirements.

Statements of expectations must be an integral part of corporate strategies. Financial and non-financial performance expectations should be ambitious and measurable and quantifiable. In order to monitor the implementation of goals, companies should be regularly assessed as to how they are achieving the set goals. All this information, as determined by the Ownership Guidelines, is publicly available, so these letters must be made public on the websites of SOEs, VAIs and VKCs.

Separation of commercial and non-commercial functions

The companies, which are owned by the state, provide certain services or develop certain products that are necessary for public needs, but they are unprofitable to the companies themselves. These are the non-commercial functions of the SOEs. Perhaps the most apparent examples illustrating the above activities are Lietuvos geležinkeliai (the company carries passengers on certain unprofitable routes) and Lietuvos paštas (which provides financially unviable services delivering subscription publications in remote rural areas).

Since as early as the Restoration of the Independence, the scope of the non-commercial functions of the SOEs and the costs involved have been unclear. As a result, it has not been possible to determine whether the non-commercial functions of the companies have been carried out and funded efficiently.

In order to solve these problems, the Government encourages all SOEs to define their non-commercial functions clearly and concurrently identify the costs involved. On the basis of the information received from the SOEs, the GCC prepares a report on special obligations (which is part of the annual report on the SOE activities). Giving unambiguous evaluation to the non-commercial functions (special obligations) helps achieve that the state and the public are well aware of how much individual state functions cost and avoid or reduce the manifestations of cross-subsidisation. Optimised financing of the non-commercial functions allows saving some funds and improving the quality of services on offer, thus enhancing the SOE business efficiency.

Corporate governance and market regulation

While controlling SOEs, the state often finds itself in an ambiguous situation. On the one hand, it (through certain institutions) is the shareholder of the SOEs; while on the other hand, it (through other bodies) regulates certain market sectors which its companies operate in. This leads to a conflict of interest, which is sought to be resolved through the separation of corporate governance from market control to the extent possible.

The experience of many foreign countries demonstrates that SOEs can operate as efficiently as their peer private companies and that the SOE performance is determined to a great extent by motivated and competent management. The government intends to reform the appointment and motivational systems for the SOE executives and collegial governing and supervisory bodies. The objective of this reform is to attract, to the SOE boards of directors, supervisory boards and top executive positions, more independent competent professionals, who can ensure that the company would be run efficiently and pursue the implementation of the approved strategy. Although the regulation is invariably evolving, at least half of all supervisory board or board members of state-owned enterprises must already meet the independence criteria, i.e. must not serve as civil servants or must not be employed by the state-owned enterprises, they must rather be qualified professionals working in private sector with sound knowledge of the market which the state-owned enterprise operates in as well as financial and strategic planning competencies.

Following the reform, SOEs stand on a level playing field with similar private companies in terms of employing executives. Following the practices of the European Union and other countries, audit committees are established and they oversee the companies’ financial reporting process and ensure the efficiency of internal control, internal audit and risk management systems and the prevention of unauthorised activities.

Ensuring transparency in the companies’ business

Lithuanian SOEs must operate in compliance with the same principles of transparency as the companies listed on the stock exchange.

The Transparency Guidelines approved by the Government back in July 2010 stipulate that all state-owned enterprises shall keep the accounts in accordance with international accounting standards and prepare sets of both annual and interim (quarterly) reports and financial statements. Since it had been observed that three- and nine-month statements created a rather significant administrative burden, the obligation to have these statements prepared was repealed. The statements are presented to the Governance Coordination Centre and are made public.

The Governance Coordination Centre draws up summary reports on a regular basis, where it presents the details across the entire portfolio of state-owned enterprises enabling to see combined business and financial performance of the companies over a particular period of time. Every year, the Government and the public are provided with two (annual and semi-annual) summary reports on state-owned enterprises. Such time frames have been chosen in order to establish a practice of regular public corporate accountability, monitor the developments in the state-owned enterprise portfolio and appropriately respond to them by taking expeditious decisions. The annual activity reports of SOEs provide information on enterprises (number and legal form of enterprises, changes in the share of state-owned companies in the authorized capital), overview of SOE management policy, total value of SOEs, overview of financial and non-financial performance, information on fulfillment of special obligations , sponsorship provided by companies, a general overview of the implementation of the remuneration policy of the SOE, as well as other information related to the activities of the SOE. The summary reports and the specified conclusions and proposals are submitted to the Ministry of Economy and Innovation and the authorities representing the state, submitted to the Government within the deadlines set in the Transparency Guidelines. The reports are also published on the Governance Coordination Centre website, where the financial statements, annual and semi-annual reports or activity reports of all SOEs and other relevant information is available.

The purpose of establishing clear ownership functions is to ensure that the state is an active owner of the assets. It sets the objectives for the enterprises, demands efficient operations and good performance, but does not interfere with the day-to-day activities of the companies. Foreign countries use three models for the implementation of the state ownership functions:

The decentralised one implies a model where the enterprises fall under the ministries which supervise relevant sectors. The main drawbacks of this model are the difficulties in separating the ownership and the regulatory functions and the clear identification of what owns the company. It is often presumed that it is the ministry which is responsible for the day-to-day running of the enterprise and its strategic decisions as opposed to the company’s board of directors.
The dual model relies on the approach that the ownership functions are carried out by ministries, but the entire system is coordinated by a single authority. This model is most often opted for by the countries gradually transitioning from decentralised to centralised corporate governance. However, such choice does not eliminate the drawbacks of the decentralised model..
A centralised model is such where all enterprises are owned by one authority. This model is considered to be the most advanced and the best, and stems from the state-owned enterprise (SOE) reforms implemented abroad over the recent years. Centralisation helps clearly identify the ownership functions and separate them from policy implementation. In addition, this model allows mobilising competent experts and efficiently using their knowledge and expertise.

It is the centralised ownership model that has been introduced across the Scandinavian countries, which were successful in reforming their SOE sector and where the profitability and efficiency of many SOEs are similar to respective results achieved by private companies. At present, Lithuania follows the decentralised model (with the coordinating body at the forefront).

The role of the coordinating body is vested with the Governance Coordination Centre. It is responsible for setting indicators, monitoring them, appraising and forming of collegial bodies as well as integration of governance principles. The ownership function is undertaken by ministries.

Governmental priorities

According to March 13, 2017 approved Government program, consistent management optimization of state-owned enterprises is being carried out. The merger of companies performing the same activities – public authorities and road maintenance companies – was successfully completed, as well as by consolidating and centralizing their management. A review of the activities (functions) of companies and their legal form is being carried out, changing the legal status of a joint-stock company to an AB, etc. The planned improvements of corporate governance include the concentration of institutions undertaking the functions of shareholders, a rollout of good corporate governance practices, the improvement of collegial body nomination process and an increase in the number of independent and professional members of collegial bodies.

The Government has confirmed that the key indicator to demonstrate that its working programme has been achieved is a reduction of the SOE. Following the mergers in the road maintenance companies and the forestry enterprises, the number has recently fallen down to 38 from 118 at the start of the Government’s work.

Institutional framework

In Lithuania, the state implements its functions of SOE owner through ministries or subsidiary bodies.

Government of the republic of Lithuania

The Government has a role of establishing a strategy for the implementation of the state ownership functions and the main guidelines therefor. It is the key decision-maker on the critical SOE governance matters.

However, the Government not only approves the Ownership and the Transparency guidelines and passes other resolutions applicable to all SOEs, but it also deals with the issues related to individual enterprises, i.e. approves large-scale asset transactions, which fall under the remit of the general meeting of shareholders and exceed the asset proportion criteria provided in the legislation, when the institution representing the state may adopt such a decision only with the Government’s approval.

Ministry of the Economy and Innovation

The Ministry of the Economy and Innovation shapes the general SOE governance policy, drafts appropriate pieces of legislation and submits them to the Government. The Ministry of the Economy and Innovation also disposes of and reviews the GCC information designed for the Government and the public, and manages the enterprises, thereby being involved in all stages of the SOE policy development and implementation.

Governance coordination centre

In September 2012, the SOE Governance Coordination Division was founded under Valstybės turto fondas. The division has been undertaking the GCC functions provided in the Ownership and the Transparency guidelines, and, since 2017, in the Law on the Management, Use and Disposal of State and Municipal Assets:

Transparency (preparing summary reports, evaluating corporate financial performance and efficiency);
Setting objectives (calculating the return on equity to be targeted by SOEs, assessing the ambition of corporate strategic objectives and monitoring the implementation thereof);
Work of collegial bodies (arranging for the nominations of collegial body members, creating a database of potential collegial body members, assessing the competences held by collegial bodies);
Policy-making initiatives (preparing methodological recommendations, new legislative initiatives, advising the Government and the Ministry of the Economy and Innovation on related policy making);
Consultation (advising the Government and ministries on the SOE management and the key shareholder decisions to be taken, advising the SOEs on business matters and implementation of good governance practices, evaluating the feasibility of new business plans, advising the Government and the Ministry of Finance on dividends to be paid).

Since its foundation, the GCC has had its functions and accountability evolve, but the core business areas remained largely unchanged. The successful implementation of good management practices in SOEs led to the fact that from January 2019, with the entry into force of the new wording of the Law on Management, Use and Disposal of State and Municipal Property of the Republic of Lithuania, similar good management practices were introduced for municipality owned enterprises. More about the GCC can be found in the following section: About us.

Good practice

The practice of many countries, which have already completed the state-owned enterprise (SOE) sector reform or launched it earlier, is given an appraisal in the documents of the Organization for Economic Cooperation and Development (OECD). They are the core sources assisting the Lithuanian Government in making the decisions as to the lines and principles of the SOE reform. It goes without saying that when introducing individual measures in Lithuania account is taken of the specific characteristics and needs of our country. Lithuania became a full member of the OECD on July 5, 2018. Lithuania intensively carried out work related to the specific recommendations in the field of good governance presented by the OECD in 2015. The OECD conducted a reassessment in 2020 (2 years after accession) of Lithuania’s progress. On the basis of reassessment, the recommendations related to the governance of SOEs will be updated.

What are the state’s ownership objectives

The basic approaches of the states towards SOEs are described in rather different terms and language, but the core is the same in nearly all cases, i.e. all countries are seeking for SOE efficiency – maximum return on equity. Some countries, such as Finland, also emphasise the social role of the enterprises. In Norway, the latter aim is known as “common welfare”. In addition, SOEs have an objective to serve as a role model promoting the country’s core values.

State as a shareholder: three models

Over the past few decades, different countries worldwide have been testing in practice a variety of SOE supervisory and control mechanisms. All of them, with certain reservations, fall into three categories according to the manner in which the state implements its function of the SOE shareholder.

Under the decentralised model, the enterprises fall under the ministries which supervise relevant sectors. Its core weakness is low efficiency in separating the functions of the state as an owner and a market regulator. In the countries subject to the dual model, the enterprises are owned by the ministries, but the entire system is coordinated by a single body, which arranges for the cooperation, establishes governance policies and specific business guidelines. This model also applies to the ownership of the Lithuanian SOEs.

A centralised model means that the enterprises are owned by a single authority, such as a specialised agency. This model is considered the most efficient because it helps clearly identify the ownership functions and separate them from policy implementation.

SOE boards of directors and supervisory boards

The main characteristics sought in the board formation process are expertise, political impartiality and professionalism. This can be ensured through independent board and supervisory board members to be elected and appropriate motivational system to be introduced.

In many countries, the number of the representatives of the body exercising the owner’s rights in collegial bodies elected by the shareholder is 1-2 members (Sweden, Germany or Great Britain). Nonetheless, it is now often accepted that direct involvement of politicians in the boards (including supervisory boards) is not ideal for two reasons. First and foremost, there is a likelihood of a conflict of interest in ensuring that the company’s business goes beyond a political issue. Second, politicians are often too busy because of their duties and daily affairs in the institutions. For this reason, civil servants do not get appointed as members of collegial bodies in Denmark, Norway and the Netherlands. What is more, in Austria, Germany, Australia and New Zealand, collegial bodies are largely composed of independent members who are on a salary for the work undertaken. Currently, independent members make up 60% of the collegial bodies of Lithuanian SOEs. Also, the application of formation standards has been extended for the case of a subsidiary of a state-owned company, where independent members must make up at least 1/3 of the number of members of the collegial body specified in the articles of association in order to increase the independence of collegial bodies.

Transparency practice

It is often the case abroad that SOEs must prepare their statements subject to the same requirements as public limited liability companies listed on the stock exchange. In all OECD member countries, SOEs shall present their annual statements. In Norway and France, business reports and financial statements are presented on a semi-annual basis, whereas in Sweden, Turkey and New Zealand, on a quarterly basis.

Summary annual reports are prepared in Denmark, Canada, Finland, Italy, Poland, the Netherlands, Great Britain and other countries. The reports or their abridged versions are made public. Sweden has had annual reports available since as early as 1999. This country also has interim quarterly reports drawn up. The objective of such time frame is to monitor the reform process and outcomes on an ongoing basis, thus identifying potential corporate governance changes in a timely manner to improve efficiency.

OECD REPORT OF 26 JULY 2018: CORPORATE GOVERNANCE IN LITHUANIA

Below, the OECD gives a review of corporate governance in Lithuania, which assesses Lithuania’s progress in the process of introducing good governance principles and draws attention to even further potential for improvement. The review not only considers the SOE governance, but also gives a large focus on private enterprises and the evaluation of legal framework and the level playing field of the latter companies and SOEs.

Corporate Governance in Lithuania

This review assesses Lithuania’s corporate governance arrangements for listed companies and state-owned enterprises against the standards of the G20/OECD Principles of Corporate Governance and the OECD Guidelines on Corporate Governance of State-Owned Enterprises.

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One of the OECD recommendations is to prioritise the strengthening of the boards of directors at the enterprises run under the Law on Companies. As far as state-owned enterprises are concerned, it has been recommended to continue to strengthen the state ownership coordination function, increase the independence of the boards of directors, improve the nomination procedures for corporate collegial bodies, continue the reform of enterprises with the legal form of a state enterprise and continue to seek that the top SOEs would be subject to mandatory disclosure requirements, and abandon the terms of office for the executives of state-owned enterprises.

Setting goals for the companies

Basic and specialized indicators of performance measurement, their reflection in the expectations charts

December 22, 2021 the updated version of the Ownership Guidelines entered into force, fundamentally changing the practice of formulating financial goals set by the State. Based on this, from 2022 the Government approves 3 long-term financial goals for all SOEs for a period of three years, regardless of the specifics of their activities

These main financial goals are expressed through indicators of long-term profitability, optimal capital structure and dividends/profit contributions, individualized according to the specifics of each SOE, i.e. i.e. it is no longer required to necessarily choose the return on equity ROE indicator as a profitability indicator, as before, SOEs can flexibly choose the most relevant indicators for them, e.g. EBITDA or Net Profit Margin, Return on Capital Employed ROCE, etc.

The mandatory capital structure indicator includes a new understanding of how SOEs should optimize their capital structure, i.e. how to effectively balance the assumed risk of borrowing from financial institutions or – methods of employing or returning surplus, unused shareholder funds to the State.

The property’s guidelines also established the establishment of specialized financial and non-financial goals compatible with VKC every year, represented through a balanced system of performance measurement indicators: 1-2 indicators are assigned to financial results, operational efficiency, customer expectations and perspectives of organizational development.

The main financial and specialized financial and non-financial activity measurement indicators established by the ownership guidelines are reflected in the shareholder’s expectation letters and must be included in the current strategic activity plan of each SOE.

Recommendations regarding special obligations

In Lithuanian

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Guidelines for Letters of Expectations

Valstybės lūkesčių valstybės valdomoms įmonėms nustatymo rekomendacijos

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SOE main financial indicators for 2022-2024

LRV Resolution “ON THE APPROVAL OF THE MAIN FINANCIAL PERFORMANCE INDICATORS TO BE ACHIEVED BY STATE-MANAGED COMPANIES FOR THE PERIOD 2022-2024”

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Development of corporate strategies

According to the Ownership guidelines, the institution representing the State must ensure that state-owned companies prepare a company’s strategic business plan: “the company’s bodies make decisions based on their competence to determine the strategy, long-term and short-term goals of the relevant state-owned company, and if additional funding is needed for their implementation, – sources of financing for the implementation of the stated objectives”.

The company’s strategic activity is a map that helps the company understand in which direction it is moving, allows it not to deviate and achieve the set goals faster and more efficiently. Strategic activity plans of SOEs are intended to ensure efficient management of these companies and serve as a management and communication tool between the Government, the institution implementing the owner’s rights, company boards, supervisory boards (if any) and their managers. The company’s strategic business plan is a tool for evaluating the work of the company’s management. In order for the strategic activity plan to be effective and efficient, it must be clear, concrete, relevant to the situation of the state and business environment, and a valuable and convenient document in the management process.

The strategic activity plan is coordinated and approved at a meeting of the company’s board (or supervisory board, if it is formed), the strategic activity plan of a state-owned enterprise is approved by the head of the institution representing the state (usually a minister). It is important to emphasize that the coordination and approval of the strategy should be a dynamic, constructive and dialogue-based process, i.e. i.e. the company’s board, together with the company’s management, must define the strategic directions and goals that the company’s management assumes as its operational commitment. During the dialogue, the goals of the company’s activities are defined, and the criteria for evaluating the achievement of the goals are agreed upon. It is recommended to set realistic, achievable, but effective, ambitious, active goals. When preparing a strategic business plan, raising indicators should take into account the shareholder’s expectations set out in the letter of expectations and taking into account the average capital returns to be achieved, approved by the Government.

Specific three-year and one-year strategic plans (including the budget and functional strategies) are prepared only after the approval of the strategy document, ensuring that both the budget and the functional strategies are clearly linked to the long-term strategy and focused on long-term goals. The strategic planning process is long, so it is recommended to start it already in the first half of the year – in May, June or even earlier.

The implementation of the strategy begins after the approval of the company’s strategic activity plan, which is detailed into three- or one-year action plans. Maintaining and improving the strategic operational plan is an ongoing and continuous process that repeats annually.

Recommendations for the preparation of a strategic plan

Guidelines for strategic planning and strategic management

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First attachment of the Strategic Planning Guidelines

Second attachment of the Strategic Planning Guidelines

The strategic plan includes both long-term and short-term goals and objectives. When preparing the strategy, it is recommended to be guided by the following parts of the content of the strategic activity plan.

Summary. It provides summarized information about the chosen strategic direction, set strategic goals and targeted indicators.
Activity description. This part presents the company’s activities: owners, essential historical facts of the company, main products and/or services, market position, as well as the main indicators of the company’s activity in at least the last 3 years.
Analysis of environmental factors. Here, the internal and external factors influencing the company’s activities are strategically evaluated, the company’s strengths and weaknesses are identified, and the company’s opportunities and lurking threats are evaluated. The analysis of internal factors evaluates the appropriateness and efficiency of the company’s functions and processes, the available resources and the possibilities of their use; a comparative analysis is carried out with competitors and/or foreign companies engaged in similar activities. The analysis of external factors evaluates the external factors that can influence the company’s activities, as well as the analysis of the market and competitive environment. SWOT analysis is information about the company’s strengths and weaknesses, opportunities and threats, it is presented based on the analysis of environmental factors.
Mission, vision, values and strategic directions. In this part, the mission of the company is named – purpose in the state, business, society; vision – desired future state of the company; values - characteristics that describe the company’s employees and their behavioral norms and principles, guided by which the company pursues its goals, combining them with the requirements of social responsibility; strategic directions – areas of activity that will be given the greatest attention in order to achieve the vision.
Strategic objectives and their measurement indicators. In this part, the company’s long-term goals are named, their measurement indicators and aspired values are determined, and the responsible persons are named.
Strategic tasks and actions. In this part, the long-term tasks aimed at achieving each of the strategic goals are named, the indicators for measuring these tasks and the values and implementation periods are determined, the long-term actions for the implementation of the tasks are foreseen, and the responsible persons are named.
Resources. In this part, the human, financial and material resources required for the implementation of strategic goals and objectives are named, their availability is assessed, and the planned schedule for the implementation of goals and objectives is presented.
Potential hazards (risks) and their management. This part assesses the risks related to the implementation of goals and objectives and the potential impact of risks, as well as the principles of risk management.
Financial forecasts are profit (loss), balance sheet and cash flow forecasts during the period of validity of the strategy, investment and their financing plans.
Principles of strategy evaluation, development and support. This part describes how the company will monitor and evaluate the implementation of the strategy, how it will ensure adequate and prompt response to possible deviations, how it will update and improve the strategy.
Attachments. This section provides additional documents, e.g. investment plan, feature strategies and more.

Evaluation of draft strategies

The evaluation of draft strategies is undertaken by the GCC. Following the Ownership Guidelines, a relevant body of the state-owned enterprise shall present a draft strategy of the state-owned enterprise to the Governance Coordination Centre for review, not later than by 15 November every year. The Governance Coordination Centre shall provide, within a month, recommendations on the draft strategy of the state-owned enterprise. A relevant body of the state-owned enterprise shall review and assess the recommendations provided by the Governance Coordination Centre.

Frequently asked questions

Evaluation of strategy implementation

The evaluation of strategy implementation is governed by the Ownership Guidelines. Thereunder, the institution representing the state shall ensure that the state-owned enterprise submits its annual report on strategy implementation by 15 May of the next year. The Governance Coordination Centre shall prepare, within 2 months of the expiry of the term for the reports to be submitted, a summary report on the state-owned enterprise strategy implementation and submit it to the Government. If necessary, the Governance Coordination Centre shall provide the institution representing the state with recommendations and proposals on the state-owned enterprise strategy implementation.

IMPLEMENTATION OF STRATEGIES OF STATE-MANAGED COMPANIES METHODOLOGY FOR THE PREPARATION OF THE ASSESSMENT REPORT 2023

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Return of companies to the state

As shown in the SOE Annual Report 2019, the SOE return to the state accounted for EUR 149,0 million for the above year, which was 11,5% less than year before. The value of dividends and profit contributions allocated to the state amounted to EUR 124,4 million, which is an increase by 10,2% if compared to 2018. The proportion of atypical taxes to the state reduced by 17,3% and stood at EUR 26,6 million in 2019.

Dividends and profit contributions

State-owned enterprises, subject to their legal form, either pay dividends or profit contributions to the state budget: companies pay dividends, whereas state enterprises make profit contributions. The procedure for the payment of dividends and profit contributions by state-owned enterprises is governed by the Law on State and Municipal Enterprises of the Republic of Lithuania and Resolution of the Government of the Republic of Lithuania Concerning Dividends for Shares of State-Owned Companies and Profit Contributions by State Enterprises. Under the above legislation, a state-owned enterprise shall pay dividends or profit contributions from the distributable profit for the current year. The distributable profit allocated for this purpose must be:

At least 85% of SOE distributable profits, if the ROE of the financial year is 1% or less;
At least 80% of SOE distributable profits, if the ROE of the financial year is more than 1% and 3% or less;
At least 75% of SOE distributable profits, if the ROE of the financial year is more than 3% and 5% or less;
At least 70% of SOE distributable profits, if the ROE of the financial year is more than 5% and 10% or less;
At least 65% of SOE distributable profits, if the ROE of the financial year is more than 10% and 15% or less;
At least 60% of SOE distributable profits, if the ROE of the financial year is more than 15%.

A state-owned enterprise may pay lower dividends or profit contributions, following a separate decision of the Government, provided:

it is implementing or is part of the implementation of an economic project of state importance as declared such by a decision of the Government or is implementing or is part of the implementation of a project of extraordinary state importance as declared such by a decision of the Seimas of the Republic of Lithuania;
the value of dividends or profit contributions to be paid by a state-owned enterprise under the legislation threatened its financial sustainability.

Atypical taxes to the state

Atypical taxes of state-owned enterprises include:

a tax paid by state enterprises for using state assets by the right of trust. This tax is paid exclusively by the companies, which are state enterprises in terms of their legal status, pursuant to the Law on Tax on the Use of State Property by the Right of Trust of the Republic of Lithuania;
compulsory deductions of the State Enterprise Valstybinių miškų urėdija paid, to the state budget, for general forestry purposes and general state budget needs from income from raw wood and non-cut wood sales under the Forestry Law of the Republic of Lithuania.